Managing Business Ethics

Managing Business Ethics

• Business ethics management is a direct attempt to formally or informally manage ethical issues through specific policies, practices, and programs.

Key Components of Business Ethics Management

• Mission or values statements are essential.
• Codes of ethics guide behavior.
• Reporting and advice channels provide support.
• Risk analysis and management mitigates potential issues.
• Ethics managers, officers, and committees oversee compliance.
• Ethics consultants offer specialized expertise.
• Ethics education and training promote awareness.
• Stakeholder consultation, dialogue, and partnership programs foster collaboration.
• Auditing, accounting, and reporting ensure transparency.

Evolution of Business Ethics Management

• Few businesses use all available tools; some may not use any.
• There is an escalating adoption of most components, as seen in US and UK surveys.
• The purpose of business ethics management is shifting from managing employee behavior to managing broader social responsibilities.

Areas of Business Ethics

• Setting standards of ethical behavior is one area.
• Managing stakeholder relations is another.
• Assessing ethical performance is also key.

1. Setting Standards of Ethical Behavior

• This involves designing and implementing codes of ethics.

Codes of Ethics

• These are voluntary statements committing organizations, industries, or professions to specific beliefs, values, and actions.
• They set ethical behavior standards for employees.
• There are four main types, including organizational, professional, industry, and program or group codes.

Prevalence of Ethical Codes

• Ethical codes are increasingly common
• There was a substantial rise in their usage during the 1990s and 2000s.
• Two-thirds of large UK firms have a formal ethical code.
• Almost all large US firms have a code of ethics.
• Codes of ethics is less prevalent in Europe and in SMEs.

Critiques of Ethical Codes

• Clear prescriptions might mean a lack of flexibility.
• There can be difficulty with multiple or novel situations, especially cross-cultural ones.
• Vague statements of obligation are included
• These codes are called primarily a rhetorical device
• Questionable control mechanisms that potentially influence employee beliefs, values and behaviors. ‘Suppress’ individual moral instincts and emotions in order to ensure bureaucratic conformity and consistency.

Effectiveness of Codes of Ethics

• Depends on implementation and administration
• For successful implementation, codes should be tailored to the organization.
• Codes should be supported by management and training.
• Codes should be enforced with reporting lines.
• Violations should be communicated to employees.
• Incentives, both positive and negative, should be created and communicated.

Global Codes of Ethics

• Organizations question developing one set of principles for all countries.
• Gift-giving customs differ between Japan and the UK.
• Equal opportunity commitments in India and the UK differ.
• MNEs should be guided by respect for core human values.
• MNEs should respect local traditions.
• MNES should believe that context matters when deciding right and wrong.
• Global codes should define minimum ethical standards

2. Managing Stakeholder Relations

• Stakeholder management is seeking understand stakeholders' interests and expectations
• Goal is to satisfy them in a way that aligns with the company’s core interests.
• There are two perspectives including instrumental and descriptive perspectives

Instrumental and Descriptive Perspectives on Stakeholder Importance

• The instrumental perspective states stakeholder impact analysis to identify critical stakeholders making the company's survival sure.
• The descriptive perspective states organizations may not be able to satisfy all stakeholders.
• The goal of different groups may conflit, also few organizations can manage all stakeholders

Assessing Stakeholder Importance

• Determined by perceived importance or salience
• Power involves stakeholders ability to influence organizational action
• Legitimacy involves stakeholder actions and if they're appropriate.
• Urgency is the degree to which stakeholders claims are perceived to all for immediate attention.

Types of Stakeholder Relationships

• Challenge
• Sparring partners
• One-way support
• Mutual support
• Endorsement
• Project dialogue
• Strategy dialogue
• Task force
• Joint venture or alliance

Problems with Stakeholder Collaboration

• Resource intensity
• Culture clash
• Uncontrollability
• Schizophrenia (chronic brain disorder that includes delusions, trouble with thinking, and lack of motivation)
• Co-optation
• Accountability
• Resistance

3. Assessing Ethical Performance

• Requires areas of assessment

Areas of Assessment

• Ethical, often focused on internal management systems
• Environmental, assessing impact on the natural environment
• Social, a broader remit including stakeholder impact
• Sustainability focusing on the triple bottom line
• Social accounting is a generic term

Social Accounting

• It is the voluntary process to communicate organizational impacts on social, ethical, and environmental issues

Social Accounting - The Body Shop

• Stakeholder dialogue
• Policy review
• Agreements of standards and performance indicators.
• Stakeholder Consultation
• Publication of report.
• Internal audit.
• Verification

Basic Social Accounting Materiality Matrix

• Chart indicating levels of:
  • High Importance and low market issues
  • High importance and high market issues
  • High impact and low market issues
  • Low market issues and low impact

Reasons for Organizations to engage in Social Accounting

• Practical and moral reasons
• Internal and External Pressure
• Identification of risks
• Improved stakeholders management
• Enhanced accountability and transparency

Disincentives for Social Accounting

• Perceived high costs
• Insufficient information
• Inadequate information systems
• Lack of standards
• Secrecy
• Unwillingness to disclose sensitive or confidential data

Traits of Good Social Accounting

• Inclusivity
• Comparability
• Completeness
• Evolution
• Management policies and systems
• Disclosure
• External verification
• Continuous improvement

Schemes in place to tackle specific aspects of social accounting

• Auditing and certifying in accordance to Social accountability standards SA 8000.
• Reporting The Global Reporting Initiative (GRI)
• Reporting assurance AA1000S Assurance Standard

Organizing for Business Ethics

• Relates to formal ethics

Formal Ethics Programmes

• Compliance orientation
• Values orientation
• External orientation
• Protection orientation

Informal Ethics Management

• Ethical Culture and climate
• Organizations should develop ethical culture
• Organizations with ethics issues should take culture change approach
• Culture learning approach is promotes moral imagination
• Factionalism and dissent is needed

Business Ethics and Leadership

• Leaders should set ethical tone for organization
• Al leadership is value laden
• Cultural change approach
• The leaders role is to articulate and personify the values the organization aspires to.
• The leader should inspire employees and motivate them to follow their lead.
• The cultural learning perspective includes the role of leadership, and participation in autonomy.
• Promoting specific beliefs and principles should occur through facilitating personal moral and engagement.

Documentary - Pink Ribbons, Inc.

• Explores relationships between companies and breast cancer.
• Focuses on the pink ribbon campaign to raising money and awareness.
• Some companies focus on philanthropy over handling core business practices.

Areas of Summary

• Business ethics has varying approaches - Europe emphasizes on social orientation rather than ethical code
• One should question the effectiveness of ethical codes
• One should avoid overstating the benefits of business ethics
• One should reflect on motivations ,development, and implementation.